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Bank of India suspends bullion trading

State-run Bank of India has suspended bullion trading in Ahmedabad after being hit by a payment crisis involving a troubled cooperative bank, a bank official said on Tuesday.

The BoI was one of the leading importer-suppliers of gold in Ahmedabad, the largest gold trading centre in India. Its monthly gold imports averaged about 15,000 bars and were worth some Rs 5 billion in 2000-01, bank officials said.

"We have decided to temporarily suspend trading in bullion in Ahmedabad," P P Jain, the BoI's zonal manager for Gujarat state said. "We may continue bullion trading in other centres like Bombay."

The bank's decision was prompted by a Rs 50-million loss it suffered after the Classic Cooperative Bank failed to honour pay orders issued by it on behalf of a leading bullion trader, Jain said.

The cooperative bank has since been put under administration and the Reserve Bank of India, which is probing the matter, has asked banks dealing in bullion to tighten their risk management rules.

Three other banks, the state-run State Bank of India, Punjab National Bank and Standard Chartered Bank, were also hit after the pay orders worth a total of Rs 696 million bounced.

A senior official of the State Bank of India, India's largest gold-import supplier, said the bank's bullion business had "fallen drastically" following the payment crisis.

It bought about 117 tonnes of the yellow metal in 2000.

"We're not doing much business now," the official said, requesting anonymity. "We're very cautious and do not deliver gold unless proceeds are realised."

Jain said the BoI could resume trading in bullion but did not set any timeframe. "The decision to suspend trading also was influenced by the poor demand from traders," he said.

Other leading commercial banks which deal in gold in Ahmedabad say they also have lowered their exposure to the bullion market in the wake of the payment crisis and were delivering gold only against assured cash payment.

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